AMD Short-Circuits on C-Suite Departure

by Tom Taulli | September 18, 2012 1:11 pm

As if things weren’t discouraging enough in the C-suite.

Rory Read took the CEO spot at Advanced Micro Devices (NYSE:AMD[1]) about a year ago to help turn around the struggling semiconductor manufacturer’s operations. Unfortunately, his efforts have proven ineffective, with the stock off nearly 50% in the past 12 months.

AMD’s shareholders got more upsetting executive news Monday evening, as the company’s CFO, Thomas Seifert, departed after three years at the post.

Investors clearly were spooked, sending AMD down almost 9% in midday Tuesday trading. So should we be taking this as a sign that the company’s downward spiral will continue?

Perhaps. AMD faces a grim future. Its core focus is building chips for traditional PCs, which is a mature (to put it nicely) market. It is feeling the pressure from the tablet world, where it’s shut out by the likes of Apple (NASDAQ:AAPL[2]) iPads, Google (NASDAQ:GOOG[3]) Android-powered tablets and Amazon (NASDAQ:AMZN[4]) Kindles.

At the same time, AMD must fend off competition in its own dwindling market, specifically Intel (NASDAQ:INTC[5]), which has the advantage of enormous global scale and R&D capabilities. Intel likely will continue to take away share in the PC market as it maintains its lead in terms of processor performance and features.

Another point of concern: A few years ago, AMD unloaded its manufacturing platform. While this resulted in lower capital investments, the move has taken a toll. It not only means that AMD can’t get the same kinds of economies of scale that Intel boasts, but it also makes it harder for the company to customize its chip designs.

To find growth, AMD has invested in making chips for servers, a play on the huge growth in cloud computing[6]. The problem is that the space is highly competitive; of course, Intel has been a fierce rival in that space as well.

With all those issues at play, it shouldn’t make one wonder too hard why AMD’s CFO was looking for other opportunities.

Meanwhile, what should investors do if they haven’t already acted?

AMD does have a low valuation, trading at just 0.44 times sales. But a cheap stock does not necessarily mean it is a good buy. AMD’s market is shrinking, and the company is having a difficult time adjusting and competing.

Advanced Micro Devices is in a terrible bind largely reflected in the stock’s steep, months-long decline. Any comeback would be a long time in conjuring. Avoid AMD for now.

Tom Taulli runs the InvestorPlace blog IPOPlaybook[7], a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling”[8] and“All About Commodities.”[9] Follow him on Twitter at@ttaulli[10]. As of this writing, he did not hold a position in any of the aforementioned securities.